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Jobs are wanting. Companies are cutting back office space. More employees work from home.

Not what anyone would consider ideal conditions for the office-design industry or the world's leading office-furniture maker, yet it couldn't be a better time to invest in
SteelcaseSCS -1.5110631408526713%Steelcase Inc. Cl AU.S.: NYSEUSD18.25
-0.28-1.5110631408526713%
/Date(1425418773486-0600)/
Volume (Delayed 15m)
:
329734
P/E Ratio
26.23634272570443Market Cap
2250791299.45118
Dividend Yield
2.3013698630136985% Rev. per Employee
288710More quote details and news »SCSinYour ValueYour ChangeShort position
(ticker: SCS). Yet, it is the ideal time to buy the shares, which could rise by at least 15% in the next year.

Grand Rapids, Mich.-based Steelcase has been reporting quarter after quarter of strong growth over the past two years, as Corporate America looks for innovative design solutions to handle a workforce that is more technologically mobile, more global, more flexible, more team-based, and more focused on well-being. Think high-definition video conferences, loads of central plug-ins and areas to work alone or in groups. Arguably, office space is being radically redesigned for the first time since the late '60s when Robert Propst's Action Office System from Herman Miller gave rise to the modern cubicle culture.

Another factor promoting sales: Chic, cool design is becoming increasingly important to attract and retain the best people. That's especially true in information technology, where bigger, more established companies and even government agencies must vie for workers with fast-growing, design-savvy outfits like Google and Apple. "There's a war for talent in the creative classes," says Steelcase President and CEO Jim Hackett.

At the same time, commercial construction is on the verge of significant recovery, which will help sustain strong growth. The American Institute of Architects forecasts 10.2% growth in commercial and industrial construction next year, up from 5.7% in 2012. Office-building construction is poised to expand 8.7%, versus 4.7% this year.

Last week,
Marriott InternationalMAR -1.0689614523163975%Marriott International Inc.U.S.: NasdaqUSD83.9232
-0.9068-1.0689614523163975%
/Date(1425418780780-0600)/
Volume (Delayed 15m)
:
1054013
P/E Ratio
32.292307692307695Market Cap
23459057703.6291
Dividend Yield
0.9528346831824679% Rev. per Employee
111700More quote details and news »MARinYour ValueYour ChangeShort position
(MAR) launched a new concept for a small meeting space at its Redmond, Wash.-based Town Center. It's using Workspring, a Steelcase brand that features five different-size studios with flexible configurations to accommodate everything from private projects to team meetings, with common areas that include natural light and outdoor access as well as ergonomic seating, high-fidelity audio and special lighting.

"I can assure you, businesses are in the best shape of the last decade," declares CEO Hackett, just back from a meeting of CEOs at a Business Roundtable meeting.

More sleek and mobile, new chairs have tables for tablets and holders for water bottles.
Steelcase

Reflecting improved demand and market-share gains, Steelcase recently reported revenue rose 6% in its fiscal second quarter ended Aug. 24 and net income more than doubled. Its Americas unit, which accounts for about two-thirds of Steelcase's sales, marked the eighth straight quarter in which organic revenue, which excludes the effects of currency translation and divestitures and acquisitions, registered double-digit gains. The unit also posted an operating-income margin of 12%, the highest since Steelcase started reporting results by segment in the first quarter of 2002. The performance beat all expectations. Earnings were 25 cents a share, excluding two cents of restructuring charges, up from nine cents a share a year ago and well above Wall Street estimates of 20 cents and management's guidance of 18 cents to 22 cents.

While the third quarter is expected to contain good news, the gains may not be as outsized. Steelcase pegs earnings at between 16 cents a share and 20 cents, compared with 17 cents a share in the year-earlier period. Earnings for the full fiscal year are estimated at 77 cents and fiscal 2014 earnings are projected at $1.01 a share.

The Bottom Line

The company's shares could rise 15% or more in the next year even without any rise in the P/E multiple. A good play on the expected gain in commercial construction.

Investors have acknowledged the trends but not nearly enough. Up more than 50% from a low level a year ago, the stock still trades at less than 10 times forward earnings and under six times Ebitda, or earnings before interest, taxes, depreciation and amortization. Those multiples can be expected to expand as the outlook for office construction improves. Raymond James sees the stock reaching $13.50 a share in the next year. BB&T Capital Markets thinks the stock can hit $11, with no change in multiple.

Steelcase has been taking advantage of the undervaluation by buying back shares. Another attraction: Steelcase has a dividend yield of 3.7% and a solid balance sheet.

Steelcase has come a long way since its start 100 years ago as Metal Office Furniture, when its invention of steel wastebaskets to replace straw ones seriously reduced the risk of office fires. This is a good entry point for investors to profit from the innovations to come.